The new normal of low interest rates and likely turbulence has me looking for ideas in the area of solid companies with dividends. Sean Williams of the Motley Fool picks five stocks that are likely to be least impacted by the ups and downs of the market, and that has me interested.
He sought to uncover five stocks that would stand the test of time-- whether the global economy was booming or in a deep recession -- and today I'll share them with you.
These five stocks all provide necessity goods to consumers. Arguably, a few of you will find his definition of "necessity" a stretch, but given the impeccable track records of these five companies, he believes they make good investments.
In no particular order:
|Duke Energy (NYSE:DUK)||Electricity||4.70%|
|American Water Works (NYSE:AWK)||Water||2.90%|
|Wal-Mart Stores (NYSE:WMT)||Clothing||2.50|
Source: Yahoo! Finance
This ticks a number of boxes for me:
- Large companies
- Good dividend performance
- In stable markets that have continuing demand in any market
- Diversified choice
In his article, Sean goes into more detail of why he chooses the particular companies but, for this exercise, I am going measure them against our benchmark ETF portfolio.
|Asset||Fund in this portfolio|
|REAL ESTATE||(NYSEARCA:ICF) iShares Cohen & Steers Realty Majors|
|FIXED INCOME||(NYSEARCA:TIP) iShares Barclays TIPS Bond|
|Emerging Market||(NYSEARCA:VWO) Vanguard Emerging Markets Stock ETF|
|US EQUITY||(NYSEARCA:DVY) iShares Dow Jones Select Dividend Index|
|US EQUITY||(NYSEARCA:VIG) Vanguard Dividend Appreciation ETF|
|INTERNATIONAL EQUITY||(NYSEARCA:IDV) iShares Dow Jones Intl Select Div Idx|
|High Yield Bond||(NYSEARCA:HYG) iShares iBoxx $ High Yield Corporate Bd|
|INTERNATIONAL BONDS||(NYSEARCA:EMB) iShares JPMorgan USD Emerg Markets Bond|
- 5 Necessity Stocks That Could Protect Your Portfolio From Disaster -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
Portfolio Performance Comparison
|Portfolio/Fund Name||1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||2%||22%||10%||77%||8%||57%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||1%||6%||15%||96%||2%||8%|
|5 Necessity Stocks That Could Protect Your Portfolio From Disaster||18%||109%||17%||114%|
This has good returns for as long as it has run. In addition, the risk adjusted returns are good. Bear in mind that five stocks should be part of the portfolio, and should be balanced with others in different asset classes.
Three Month Chart One Year Chart Three Year Chart Five Year Chart
As I look over the longer time horizon, this selection has done well. I like the idea of the different sub-classes mixed in with large companies offering dividends. One has to remember that any one company can get into trouble -- for example, Tesco in the UK has had a precipitous drop in its stock because it failed to garner its fair share of Christmas shoppers. So you may want to select another choice in the list. Overall, however, I think the approach bears merit and consideration.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.